- The share of purchase orders now takes up 48% of the market
- 72% of traders are now long the Buck
- The 20-day SMA and the monthly PP represent resistance around 119.90
- Support is around 119.10 (the weekly PP and the Bollinger band)
- The average three-month forecast stands at 120.52
- Upcoming events today: US Crude Oil Inventories, FOMC Member Powell Speech, US Jobless Claims, US Existing Home Sales
The American Dollar experienced mixed performance, appreciating against some major peers, while declining against the others. The US fundamentals also showed mixed results yesterday, being somewhat responsible for such divergent performance. The Buck lost 0.30% against the Loonie, followed by a 0.16% and 0.15% declines versus the Aussie and the Euro, respectively. Gains of 0.57% were registered versus the Kiwi, 0.28% against the Yen and 0.14% versus the Sterling. However, the US Dollar remained relatively unchanged against the Swissie, sliding down only 0.02%.
The number of US housing starts surprisingly rose in September, while building permits dropped more than expected. According to the Commerce Department, housing starts surged 6.5% to a seasonally adjusted 1.206 million units in September, following the previous month's total of 1.132 million units. Analysts, however, had predicted a figure of 1.140 million. At the same time, the number of building permits issued in September plunged 5.0% to a seasonally adjusted 1.103 million units, compared with August's 1.170 million. A strong increase in employment over the past year, coupled with very low mortgage rates and gradually easing lending standards, have underpinned demand for new dwellings.
In addition to that, builder confidence climbed to the highest level in ten years in October, according to the National Association of Home Builders. The builder sentiment index rose to 64 points, up from 61 last month. Readings above the 50-threshold indicate more builders view sales conditions as favourable rather than poor. The index has been consistently above 50 since July last year. Builders' upbeat mood bodes well for a pickup in new home construction, which could support the overall economy.
In response to the latest Bank of Japan meeting, Stuart Allsop, head of financial market strategy at BMI Research, said that no action from the central bank was expected and that they are likely to "refrain from doing any more stimulus this year". However, he noted that "the risks have increased".
Concerning the GDP growth, the analyst doubts that it will "get above 1% anytime in the foreseeable future". The reasons for this are manifold. First, there is "a huge headwind in terms of demographics". Additionally, there is a decline in growth of China coupled with global economic slowdown. However, the main negative factor provided by Allsop is a "very unstable production structure". He explains that the real interest rate is negative, which is "sending contradictory signals to the real economy", and this in turn leads to a low chance of "a productivity boom
As for the Japanese Yen, Allsop is bullish on the currency. In his opinion there are two main contributing factors. The first one is that "investors lose faith in the willingness of the BoJ to act. At the same Allsop adds that the Yen has proven recently its status as a global safe have, and this is beneficial for the value of the currency being that "global financial markets are looking quite shaky", which is negative for the risk sentiment. At the same time, the analyst mentioned that USD/JPY "may fall quite significantly in the coming months", and if this is the case, "this would raise the prospects of intervention from the BoJ."
Uneventful mid-week
No significant events are scheduled for Wednesday, maybe with exception of the US Crude Oil Inventories. The lower number of inventories could affect oil prices, increasing them; thus, boosting commodity currencies, amid lifted fears of oil supply glut. Due to lack of events, markets will be focusing on the Federal Reserve Governor Powell's speech, which is scheduled at 17:30 PM GMT. Any information about the interest rate decision is likely to influence the USD crosses accordingly.
Marcel Thieliant, economist from Capital Economics, forecasts USD/JPY to be at 130.00 by the end of the second quarter. The analyst commented that he expects the BoJ to step up the pace of easing at the end of this month. "This is obviously not what other economists expect, if that happens, we will probably see a strong drop in the Yen against the Dollar and against other major currencies," Thieliant said.
Steve Lucas, technical analyst at 3CANALYSIS, gives their perspectives on the USD/JPY currency pair. "We have persistently been bullish of USD/JPY, but in the very short-term we think there will be a pullback", he said. Steve explained their view by mentioning that since the pair posted the 12.5 year high in June, last week put in a bearish reversal candle, which is a negative signal. "We also think that the deception out there is that the Fed is going to be a little easier on raising interest rates and people are going to be a bit cautious and a bit sensible and take the money off the table", the analyst added.
USD/JPY takes another crack at 120.00
The US Dollar appreciated against the Japanese Yen for the fourth day in a row, but was unable to pierce the resistance just under the 120.00 major level. Although the Greenback remains relatively strong and is outperforming the Yen in the hourly hours, risks of falling down persist. The 20-day SMA and the weekly PP are still a decent obstacle around 119.90. A breach of this level will doubtfully do any good for the USD/JPY, as a much stronger resistance cluster lies around 120.63, namely the area, which prevented the pair from rising higher for the past seven weeks.Daily chart
The USD/JPY stopped in front of the resistance trend-line, but refused to move far away. As a result, the down-trend was tested again today, with an attempt to breach it. However, the exchange rate returned below the line, remaining muted, awaiting for fundamental events to cause either a breakout or preserve the trend.
Hourly chart
Bulls preserve majority
OANDA and SAXO Bank also report minor preponderance of bullish market participants. In the first case the longs take up 58% of the market (60% previously). In the second case 56% of open positions are long, down from 68% on Tuesday.
Spreads (avg, pip) / Trading volume / Volatility
The average three-month forecast stands at 120.52
The 121.50-123.00 price interval remains the most popular choice, selected by a slightly less than a fifth (19%) of all voters. The second most popular choices are the 114.00-115.50 and the 124.50-126.00 price ranges, each voted for by 14% of the survey participants. Meanwhile, the mean forecast for January 21 is 120.52, while 39% of the surveyed still assume the Dollar could cost less than 120 yen in three months.
In course of the week forecasts, sentiment among Dukascopy traders became rather weak for this currency pair, as 75% of trades expect bearish development. The average expectation is located around 118.4.
Being among only 25% of traders, Jignesh, suggests the equity market correlation, which was strong in the previous month, has dissipated. "However, last week we saw some strong signs of reversal on the dailies, a doji followed by a strong bullish engulfing candle may be setting up the week for strength," he commented. Jignesh also adds that "the pair has had the clearest, strongest, and longest trends across the majors, and buyers are waiting on standby to get involved in this uptrend." Meanwhile, with the other three quarters of the traders, on the bearish side, aslamhammad is expecting price to consolidate back around 118 yen. "But if price closes above 120Yen, price could continue rise higher. As in the monthly+weekly chart price is consolidating to downside. So, sentiment is bearish at the current moment," aslamhammad explained.